Written by Tom Stephens, Executive Director of the Kentucky Association of Health Plans
The hidden billing practices raising healthcare costs
Sophisticated new mark-up schemes, provider consolidation, and dated diagnosis criteria are all impacting Kentuckians
There is no single explanation for America’s high healthcare costs. But any serious effort to control them must start with hospitals.
Between 2022 and 2024, hospital care accounted for $277 billion, or 40%, of the growth in national health spending, according to a KFF analysis. Those costs reach families through premiums and out-of-pocket expenses, businesses through employee benefits, and taxpayers through Medicaid.
One way bills rise is through “upcoding,” when a medical visit or hospital stay is billed at a higher rate because it is described as more complicated than the record shows. Intent is not the only issue. Even unintentional coding inflation raises costs.
Some AI tools now listen to conversations during patient visits, turn them into medical notes and recommend billing codes. These tools are then marketed to health systems as a way to increase revenue.
Blue Health Intelligence, an independent Blue Cross Blue Shield licensee, analyzed claims from 2022 to 2025. Its analysis found that among the 10% of hospitals with the largest increases in coding intensity, nearly 60% of eligible admissions were classified as complex by March 2025, up from about 47% in 2022. Other hospitals recorded a much smaller increase.
Did patients suddenly become much sicker at a small group of hospitals, or did the billing practice change?
Because health plans see millions of claims, they can spot billing patterns that are invisible on any single bill. They can then compare higher-priced codes to the medical record and correct those the documentation does not support, saving much needed health care dollars.
The stakes are especially high as more hospitals and medical practices become part of large health systems, national corporations or investor-backed networks with sophisticated revenue operations. Data from the Private Equity Stakeholder Project show that Kentucky ranks 11th nationally in the number of private-equity-owned hospitals and eighth in the percentage under private equity control. Its tracker identified 17 Kentucky hospitals owned or operated by private equity firms.
It makes no sense to allow providers to use technology to maximize revenue while restricting health plans from using data to stop unsupported charges.
Kentucky’s sepsis policy shows how outdated billing rules can push costs higher. Sepsis is a life-threatening response to infection that can damage the body’s organs. How it is defined can affect how a hospital claim is classified and how much Medicaid pays.
According to a Kentucky Association of Health Plans review, Kentucky is one of only three states requiring Medicaid health plans to use sepsis criteria rooted in 1991, the year the Soviet Union was collapsing, and the first website went online on the World Wide Web.
International medical experts adopted the more precise Sepsis-3 definition in 2016 after concluding that the older criteria did not reliably distinguish sepsis from other illnesses. Still, in 2024, after the Kentucky Hospital Association and hospital executives pushed to preserve the older criteria, lawmakers wrote that approach into state law.
The old broader definition that Kentucky uses makes it easier for hospitals to classify and bill a patient as having sepsis, even when the patient does not, based on the internationally-recognized modern definition. Because sepsis is paid as a more serious condition than many infections, the label can increase reimbursement without impacting the care a patient receives. This is the definition of waste.
It can also make hospital performance appear better than it is. When less seriously ill patients are counted as sepsis cases, reported outcomes can improve even when the quality of care does not. Researchers have warned that diagnosis and coding can create exactly that misleading impression. That can mean a bigger bill and a distorted scorecard. Ultimately, misreporting sepsis pollutes the sepsis outcomes’ database. Such data is critical for informing appropriate patient care models now and in the future.
Whether a higher charge comes from an AI-assisted billing code or an outdated sepsis definition, the principle is the same: Hospitals should be paid for the care they provide, not for complexity they added on paper.
Kentucky should modernize its sepsis law and ensure health plans can stop unsupported charges before they raise costs for families, employers and taxpayers.
Tom Stephens is Executive Director of the Kentucky Association of Health Plans.
